Central banks stem market bleeding

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Asia stock markets have moved cautiously higher following a co- ordinated move by central banks across the world to cut their key interest rates in an attempt to stave off an economic meltdown.

Central banks in the US, Europe, Britain, Switzerland, Canada, Sweden, Hong Kong and China cut their key lending rates in unison on Wednesday.

The unprecedented move intended to stimulate the economy by encouraging consumers and businesses to spend more readily on lines of credit, had appeared to have little impact on volatile European and US markets on Wednesday.

Banks remained nervous about lending between each other for fear of not being able to recover loans.

The Dow Jones Industrial Average in the US rallied 150 points after the rate cut announcement but dropped sharply in the last half hour of trading to close more than 200 points or 2.2 per cent lower.

But many Asian markets moved into positive territory on Thursday a day after suffering record falls.

Japan's benchmark Nikkei index was in and out of positive territory in the morning but ended the session up 1.3 per cent after having suffered its biggest one-day loss - 9.4 per cent - in more than 20 years on Wednesday.

Other Asian bourses such as Hong Kong's Hang Seng, South Korea's Kospi and Singapore's Straits Times were higher but Australia's benchmark S&P/ASX 200 was down more than two per cent, extending its five per cent slide on Wednesday.

Australia's central bank had already cut it key interest rate by a full percentage point on Tuesday - double the amount that was expected and the biggest rate cut since 1992 - but it brought only a brief respite to Australian markets.

South Korea's central bank followed other banks' lead on Thursday, cutting its key interest rate for October by 25 basis points to five per cent - the first since November 2004 and a reverse from a quarter of a percentage point increase in August to fight inflation.

Paulson warning

Henry Paulson, the US treasury secretary, welcomed the co-ordinated central bank rate cuts as a "sign that central banks around the world are prepared to take the necessary steps to support the global economy during this difficult time".

Speaking to reporters on Wednesday ahead of a gathering on Friday of finance ministers and central bankers from the G7 industrialised nations, he urged governments to "continue to take individual and collective actions to provide much needed liquidity, strengthen financial institutions through the provision of capital ... and protect the savings of our citizens".

And he urged greater unity in central bank efforts, "so that the action of one country does not come at the expense of others or the stability of the system as a whole".

Despite the unprecedented central bank efforts though, Paulson warned on Wednesday that global financial markets remained severely strained and several more banks would probably still collapse despite the $700bn bailout plan approved last week.

Saying "the turmoil will not end quickly and significant challenges remain ahead", Paulson urged patience and said the government was working hard to implement the plan but that it would be a few weeks before it kicked in. full news

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